Morgan Stanley remains underweight on Gujarat State Petronet Ltd., and has cut its price target by 17 percent on the stock.

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In its latest note, the brokerage cut its price target on GSPL by 17 percent to Rs 265 from Rs 319 earlier. It said that the company's volume growth is likely to remain muted for the next couple of years.

The brokerage said that GSPL's volumes are likely to grow at a Compounded Annual Growth Rate (CAGR) of 2 percent over the next three years, which is just one-third of the country's average gas demand growth.

"We expect volume growth to be capped at 32 mmscmd with significant exposure to the global LNG prices," the Morgan Stanley note said.

Morgan Stanley believes that GSPL's dependence on the refinery and power sector demand drives the weakness in volume growth. Moreover, loss of demand from Reliance’s refinery would also continue as RIL (Reliance Industries Ltd) sources its own production and petroleum coke.

“We see GSPL’s volumes remaining around 17 percent below pre-Covid levels,” the note said, adding that alternatives like domestic gas, petroleum coke and coal remain more competitive in the current times compared with LNG.

Meanwhile, Morgan Stanley also noted that the holding company discount for GSPL’s nearly 54 percent stake in Gujarat Gas is slightly higher than the long-term average of around 50 percent.

It expects this discount to widen as GSPL’s volume growth underperforms peers and Gujarat Gas.

Shares of GSPL are off the day's low, currently trading little changed at Rs 275.50. The stock is up only 2 percent so far in 2023.

First Published:Aug 22, 2023 10:58 AM IST